Extensions of the standard real business cycle model: The case of Turkey

Official URL: https://risc01.sabanciuniv.edu/record=b2748988_(Table of contents)

In this paper, I analyze a real business cycle model augmented with variable capital utilization, preference shocks, government spending shocks and financial frictions following Letendre (2004) and Garcia-Cicco, Pancrazi, and Uribe (2010). Calibrating the model to Turkey, the results suggest that endogenous capital utilization generates a stronger countercyclicality of trade balance close to that observed in the data. Productivity and government spending shocks analyzed with a higher debtelasticity of risk premium are able to produce excess consumption volatility observed in the data while preference shocks and interest rate shocks have a negligible role in explaining business cycles in Turkey.